If you turn off this setting, Office will no longer be able to automatically merge changes from different versions of documents. You’ll also be prompted to upload a new copy of a file before you can share it directly from an Office desktop app.

You can also elect how to handle Sync conflicts, which by default is set to Let me choose to merge changes or keep both copies.

The defaults options are going to suit most people but you can go in a customise these if you wish to improve how conflicts are handled in your environment.